Best mortgage deals for buy-to-let investors
Many people are looking towards the property market as they seek higher returns than those offered by traditional savings accounts and other forms of investment.
Buy-to-let investors often to get mortgages on an interest-only basis, though capital repayment options are available if that is appropriate for your circumstances. Remember while property prices have risen in the last few years, there is no guarantee that values will keep increasing.
Our roundup of the best deals is based on someone borrowing on an interest-only basis against a £250,000-property for 20 years. Our buyer is paying all fees upfront.
There are a range of options for borrowers with a 25% deposit with rates at historic lows, here are Moneywise's top buy-to-let picks this week.
Post Office, up to 75% LTV, 1.98%
Fixed until 30 April 2019 then reverts to SVR (currently 4.74%)
The Post Office has the cheapest two-year fixed rate deal charging interest at 1.98% with an upfront product fee of £1,305. Monthly interest only repayments are £309 for the first two years, an annual cost of £4,365. Once the fixed rate expires the SVR of 4.74% kicks in.
HSBC, up to 75% LTV, 2.79%
Fixed until 30 June 2022 then reverts to SVR (currently 4.75%)
HSBC comes out top of the five-year fixed rate deals. This has a headline rate of 2.79% until April 2022. Monthly repayments are £436, representing an annual cost of £5,670. The fees here are a hefty £2,196.
Godiva Mortgages, up to 75% LTV, 2.39%
Variable for term
If you’re willing to take your chances with a variable rate mortgage then Godiva will charge 2.39% for the mortgage term. There is a product fee of £1,999 and monthly payments of £373 – equivalent to £4,593 per year. Godiva Mortgages are only available through a mortgage broker.
Deals are slightly more attractive with a 40% deposit, with many rates available for well under 2%. You’ll need to remember to factor in the upfront fees, which in some cases makes the total cost much more expensive.
Platform, up to 60% LTV, 1.69%
Fixed until 30 April 2019 then reverts to SVR (currently 5%)
This deal lends at 1.69%, fixed until April 2019, meaning it’ll cost £211 per month to borrow £150,000. However, borrowers will need to pay £928 in up-front fees, so the annual cost is £2,999. Remember Platform products are only available through a mortgage broker or financial adviser.
Platform, up to 60% LTV, 2.44%
Fixed until 30 April 2022 then reverts to SVR (currently 5%)
For a longer fix, this 2.44% rate is guaranteed until April 2022. The total monthly cost is £305 per month, meaning the annual total is £3,996. Borrowers must pay up-front fees of £1,678 with this product.
Leeds Building Society, up to 60% LTV, 1.85%
3.89% discount for two years then reverts to SVR (currently 5.74%)
Leeds Building Society comes out on top of the variable deals. This rate is 3.89% below the mutual's standard variable rate for two years, before reverting to 5.74%. Repayments are £231 per month with £199 fees. That’ll cost £3,055 per year.
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Every mortgage lender has a standard variable rate of interest, or SVR, on which it bases all its mortgage deals, including fixed and discounted rate and tracker mortgages. When special deals come to an end, the terms of the deal usually state that the borrower has to pay the lender’s SVR for a period of time or pay redemption penalties. The lender’s SVR is, in turn, based on the Bank of England’s base lending rate decided by the Bank’s Monetary Policy Committee (MPC). Every time the MPC raises its rate, mortgage lenders generally increase their SVR by the same amount but when the MPC lowers its rate, lenders are often slow to pass this on or don’t pass on the full cut to borrowers.
Loan to value
The LTV shows how much of a property is being financed and is also a way to tell how much equity you have in a property. The higher the LTV ratio the greater the risk for the lender, so borrowers with small deposits or not much equity in the property will be charged higher interest rates than borrowers with large deposits. The LTV ratio is calculated by dividing the loan value by the property value and then multiplying by 100. For example, a £140,000 loan on a £200,000 property is a LTV of 70%.
The catch-all term applied to investors who buy properties with the sole intention of letting them to tenants rather than living in them themselves, with the proceeds from the let usually used for the repayment of the mortgage. Buy-to-let investors have to take out specialised mortgages that carry higher interest rates and require a much bigger deposit than a standard mortgage. Other expenditure can include legal fees, income tax (on the rental profits you make), capital gains tax (if you sell the property) and “void” periods when the property is unlet.
This is a mutual organisation owned by its members and not by shareholders. These societies offer a range of financial services but have historically concentrated on taking deposits from savers and lending the money to borrowers as mortgages, hence the name. In the mid-1990s many societies “demutualised” and became banks. One academic study (Heffernan, 2003) found demutualised societies’ pricing on deposits and mortgages was more favourable to shareholders than to customers, with the remaining mutual building societies offering consistently better rates. In 1900, there were 2,286 building societies in the UK; in 2011, there are just 51.